Span­ish banks or­dered to re­pay mort­gage in­ter­est

Kuwait Times - - BUSINESS -

Span­ish bank stocks fell strongly yes­ter­day af­ter a Euro­pean court ruled lenders must re­im­burse clients who signed mort­gage con­tracts that pre­vented them ben­e­fit­ing from a steady drop in in­ter­est rates. The de­ci­sion marks an­other blow for Spain’s bank­ing sys­tem, which is al­ready reel­ing from the im­pact of mount­ing loan de­faults, shrink­ing credit de­mand and tougher cap­i­tal rules.

The Bank of Spain es­ti­mates the rul­ing could cost Spain’s bank­ing sec­tor over four bil­lion eu­ros ($4.2 bil­lion), just four years af­ter it re­ceived 41.4 bil­lion eu­ros in Euro­pean Union bailout funds. Span­ish bank stocks suf­fered heavy losses with small lender Liber­bank lead­ing the fall, down over 11 per­cent in early af­ter­noon trad­ing. Spain’s Supreme Court ruled in 2013 that so-called mort­gage “floor clauses”, which im­pose a limit on how far in­ter­est rates in a vari­able rate mort­gage can fall in line with the bench­mark rate, were un­fair be­cause con­sumers had not been prop­erly in­formed of the con­se­quences.

But it de­cided that any re­im­burse­ments should only be retroac­tive to May 2013, the date when it ruled that mort­gage floors needed to be re­moved. Con­sumers had asked for the re­pay­ment of the sums they claim have been un­duly paid to banks from the date they signed their mort­gages. The Euro­pean Court of Jus­tice ruled that the pro­posed time limit on the re­funds is il­le­gal and cus­tomers should not be bound by such un­fair terms.

“The find­ing of un­fair­ness must have the ef­fect of restor­ing the consumer to the sit­u­a­tion that consumer would have been in if that term had not ex­isted,” the Lux­em­bourg-based court said in a state­ment. Most of Spain’s home loans are pegged to the 12 month-euro in­ter­bank of­fered rate, or Euri­bor. The bench­mark has fallen, but thou­sands of clients with mort­gage floors did not ben­e­fit. Spain’s main op­po­si­tion So­cial­ist party called on Prime Min­is­ter Mar­i­ano Ra­joy’s con­ser­va­tive gov­ern­ment to quickly put in place a sys­tem to stream­line the re­im­burse­ment of money to the roughly two mil­lion peo­ple it es­ti­mates are af­fected.

‘Jus­tice re­stored’

“It is go­ing to be a very con­tro­ver­sial ques­tion,” Erick Ber­guer, a lawyer who spe­cial­izes in bank law, told AFP. The Euro­pean court rul­ing “will ap­ply to court cases that are still open but there is a doubt in the case of law­suits that have al­ready been closed,” he added. Span­ish banks con­trib­uted to the prop­erty bub­ble in the 2000s by eas­ing ac­cess to mort­gages, spark­ing a con­struc­tion frenzy across the coun­try.

At its height in 2007, banks is­sued 1.78 mil­lion hous­ing loans worth a to­tal of nearly 300 bil­lion eu­ros, ac­cord­ing to na­tional statis­tics in­sti­tute INE. The fig­ure dropped to 372,000 hous­ing loans last year worth around 49 bil­lion eu­ros. The prop­erty bub­ble fi­nally burst at the be­gin­ning of 2008, spark­ing a sharp eco­nomic down­turn that caused the un­em­ploy­ment rate to soar to a record high of 27 per­cent in 2013. —

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